On 28 February 2019 Rentokil Initial released their 2018 results which were in excess of their own medium term financial targets. Operating profit was 13.3% up. As a result their shares rose by 8%.
Unaffected by political or economic upheaval, Rentokil Initial’s ongoing revenue was up 13.2% to £2,455m with ongoing operating profit up 13.3% to £329.3m
Pest control accounts for one-third of the business
The pest control sector now accounts for 63% of ongoing revenue and 67% of ongoing operating profit and generated a net operating margin of 17.6% in 2018. In 2018 ongoing revenue and ongoing operating profit in pest control grew by 12.6% and 9.9% respectively. Organic revenue rose by 4.8% with growth through company acquisition of 7.8%.
In their financial report, the company states that their strategy in pest control is to strengthen their position as global leaders through increased organic growth and by establishing stronger market positions particularly in growth and emerging markets, and through digital expertise, innovation and acquisitions.
Growth markets
The growth markets identified include North America, the UK, the Pacific, Germany, Benelux and the Caribbean. These represent 54% of group revenues and 59% of group ongoing operating profit.
North America is singled out as particularly important with national pest control coverage now supported by 300+ branches, 45 distribution centres and over 8,000 employees. Approximately 75% of revenues are contracted and 25% comprised of jobbing revenue. Strategy in this region is to build density through organic initiatives and successful mergers & acquisitions.
112 new pest control businesses in growth markets were acquired since 2014, 56 of which were in North America and 18 in Europe. Passing reference only is made to the acquisition of the pest control business of Mitie in the UK on 1 October and that this is being held separately pending completion of a Competition & Markets Authority review.
In the UK growth has come through the use of digital expertise, innovations, productivity and service enhancements and acquisitions. In 2018 c. 33% of new sales in the UK were delivered through the company’s innovation pipeline.
Emerging markets
Rentokil states it has an unrivalled position in the markets of Asia, Latin America, MENAT, Kenya, Fiji and Central America collectively delivering 9% of group revenues and 8% of group ongoing operating profit.
Asia made good progress during 2018, delivering 6.4% organic growth. In India the business has grown from a small loss-making unit to the country’s number one pest control operator through the formation of a joint venture with PCI Pest Control Private Ltd. In China the strategy of pursuing city-based operations with a focus on specific urban and industrial zones has been adopted.
Digital products and services
Rentokil identifies unprecedented levels of change from the impact of technology on customers and also front-line and back office staff. IT is used to improve the quality and consistency of service delivery, drive innovation and reduce costs. The report states that Rentokil believes they are leading the pest control industry in the commercialisation of the ‘Internet-of-Things’ through connected devices and have digital expertise at every stage of the customer journey from web searching through to e-billing.
Further progress has been made in digital pest control in 2018. The myRentokil online customer portal is now being used across 34 countries, with over 140,000 premises added in 2018. Last year customers downloaded over 4million e-reports from the portal. Approximately 85% of commercial pest control customers now use the myRentokil portal and the company aims to have 100% of commercial customers using it by the end of 2019.
Connected devices, such as PestConnect, the award-winning remote monitoring system for rodents and the world’s smartest mouse trap, enables Rentokil to provide customers with a complete pest detection solution and full traceability. There are now have over 70,000 devices being used in c. 3,800 customer premises across 18 countries. The Connect range is being extended with the launch of multi-catch rodent devices and they are also piloting an innovative bed bug monitor across 400 sites in North America.
Other digital products developed during 2018 included Autogate and Dual Autogate Connect, and MultiMouse Trap. These three solutions, along with a number of others, will be launched through 2019.
Innovation
Following the success in 2017 of the first Lumnia insect light trap product, the range was extended in 2018 to include Lumnia Standard Ultimate (which uses second generation lamps), Lumnia Compact and Lumnia Colour. Since launch over 60,000 Lumnia units have been sold across the globe, of which 40% were in North America.
Other notable product launches identified during the year included a fluorescent tracking gel, Agrilaser, Fruit Fly Ninja and Entotherm Compact. In 2019 the plan is to continue the roll out RapidPro (claimed to be the world’s fastest acting rodenticide aimed specifically at mice) into new countries and to expand the range of mosquito control solutions from the Vector Control Centre of Excellence.
Charity fund established
These results were followed on 1 March with the announcement of a new initiative that will fund charitable causes using unclaimed shareholder dividends and shares. To be called Rentokil Initial Cares, it will administer funds from unclaimed dividends and shares to charities. Rentokil Initial anticipates that the fund will enable it to contribute approximately £250,000 to good causes each year.
While the vast majority of dividends are claimed by shareholders, each year a small percentage (but potentially significant in cash terms) of dividends remain unclaimed and a small number of shareholders are untraceable. In line with UK company law, these ‘dormant’ funds can be returned to companies after 12 years. At Rentokil Initial, the total value of unclaimed dividends and shares stands at over £1m.
